Why Germany has to put its foot down on the road to digitalisation
BY TEMEL KAHYAOGLU
(Published in The Produktkulturmagazin issue 1 2018)
Already an established part of everyday life, digitalisation is gradually becoming a fixture in politics and business as well. Initially eyed with scepticism, many businesses have since come to realise the benefits of digitalisation and the advantages it brings as they attempt to keep pace with developments. We spoke with two experts about the current state of digitalisation in Germany and Europe.
Digitalisation is taking root comparatively slowly in Germany. Where do we stand, in your view?
Dr H.P.: Germany is at the level of an industrialised country. Digitally speaking, I would even go so far as to say that we are a developing country. This is due, on the one hand, to infrastructure. For a wide variety of reasons, the expansion of fibre-optic cable and broadband is not progressing fast enough. This puts enterprises in rural areas at a real locational disadvantage. The prospects for expansion that politicians have been discussing for many years is a joke. No strategy and poor execution. On the other hand, our educational system is coupled to the needs of the post-war and industrial era. In almost no way does our educational system meet the needs of IT companies and start-ups. We have to accept the fact that computer science is the language of the future – it’s actually already the language of the present. Big data and the effects of social media on work and society are ignored completely. And neither politics nor society nor ‘the business community’ have yet recognised the extent of transformation due to digitalisation. To begin with, digitalisation means different customer needs. This also implies a change in our mindset: agile work, and the willingness to take risks and innovate.
Dr F.H.: Germany is unusually far back, in terms not just of broadband development, but also the provision of public services. E-government is having trouble and is even on the decline. The health insurance card is a Bermuda Triangle costing billions. The focus is on protecting vested rights. Just one example: Despite all the previous proclamations, it is not a good sign that there is no Ministry for Digitalisation, not even a staff position in the German Federal Chancellery. On the other hand, there’s a Homeland Ministry. The objectives are set through 2025; the situation is managed, not shaped. It is a misconception to keep viewing digitalisation as a topic for the future, not for the present. Other countries have advanced much further, among them the small country of Estonia in north-eastern Europe, but also the Scandinavian countries, Finland and Austria.
What are the specific features and challenges of digitalisation in politics and business?
Dr H.P.: Germany is not a service country, such as England; it is a production country. This involves certain advantages and disadvantages. One advantage to date has been the close dovetailing of producers and consumers. A significant impact of digitalisation is the sharing economy and, in relation to this, the platform economy. This represents the greatest challenge, in my view. Platforms are inserting themselves between producers and consumers, occupying the interface to the customer. The producer itself is becoming interchangeable. Dependency is on the rise. To date, there is still no real concept available to address this challenge in Germany.
Dr F.H.: Both areas involve a strategically organised, top-down process; but this process has to introduce a change of mentality on the part of the citizen or customer. That’s the only way the digital shift can succeed. The discussions waged in Germany are too complex and too technocratic. Trust and transparency are decisive elements.
Why do you think German companies are more reserved when it comes to digitalisation?
Dr H.P.: A large share of the responsibility here rests with the political sphere. The severity and speed of change has not been recognised yet, nor has this been sufficiently communicated to society or businesses. None of the skills or competencies required to manage this are anchored in our educational system. Public administration itself is at the level of a developing country.
Dr F.H.: Germany’s economy has a great deal of catching up to do when it comes to the disruptive technologies that destroy existing business models through innovation and replace them with their own. The label ‘Industry 4.0’ conceals a lack of innovative spirit. As a result of the economic boom, the need for innovation is not necessarily seen. People are resting on their laurels. Surveys also reveal great scepticism among small and medium-sized firms. Apparently, it is not possible to develop a joint venture with the state and chart a political course in digital competition. In Germany, privacy protection in particular is making it difficult for digitalisation to gain a foothold. This can be seen in the recent debates around the electronic health record and the digital signature. More than anything else, though, there is a lack of discussion in society, among young and old.
How do things look at the European level, by comparison?
Dr H.P.: Initial approaches can be seen in Austria. Individual cities with dedicated local politicians in Germany are leading the way. On the whole, the countries of Scandinavia are more innovative and more advanced than we are in Germany. In a global comparison, however, Europe on the whole is lagging behind.
Dr F.H.: In spite of professions of greater digitalisation, what many EU member states lack is actual execution. In this case, fears of relaxation in data protections create a high hurdle – sensitivities are very different. Frequently, there is also a lack of the necessary IT infrastructure. Political interests in the EU are divergent as well: Some EU countries have reservations about a proposal by Germany and other countries to tax globally operating internet giants based on their European revenue.
Why is it that Estonia, for example, is so much further?
Dr H.P.: It’s because of a government that has recognised that digitalisation offers an opportunity. A holistic strategy was developed and consistently implemented. In an atmosphere that is extremely start-up friendly and hostile to bureaucracy. The opposite of the German path.
Dr F.H.: The country, poor in raw materials and resources, identified this as a decisive competitive advantage in the late 1990s. The SIM card is the personal identity card. Tax returns can be filed at the click of a mouse. And starting up a company of your own takes a world-record time of 18 minutes and three seconds. There is essentially no more paper traffic. An overall political strategy teamed up with a sense for adventure and encountered an open-minded population willing to change, and caught up in the euphoria of independence. That’s how Skype was invented in Estonia. IT skills are already taught in schools. Many jobs require in-depth IT skills. Career civil servants and permanent employment arrangements are of little value to the Estonians. People between the ages of 20 and 40 are sitting at the helm, however.
The Group of Analysts has published the EDEN Study, measuring the digitalisation status of European companies. Are you surprised to learn that nearly 40 per cent of the companies surveyed had not yet embarked on any concrete projects for the digital transformation as of early 2017?
Dr H.P.: Not at all!
Dr F.H.: Not very, since the ‘digital transformation’ often serves as a catchword. In contrast to Estonia, there is no recognition that only concrete projects that may, and in fact must be able to fail, can also lead to success. But the only way to accomplish this is through a change of mentality, and not with the fear of losing your job, essentially sawing off the branch you’re sitting on.
In companies where there are digital strategies in place, only 24 per cent work across all levels, networked and in coordination. Isn’t a different mindset needed at the board level – to keep important benefits and synergies of digitalisation from going up in smoke?
Dr H.P.: Definitely. Digital culture and the digital mindset are the drivers par excellence. And change only works if it comes from the very top. So, before I launch processes at an operational level, there has to be a strategy and networking plan in place at the board level first. This is the only way to ensure consistent execution.
Dr F.H.: Innovativeness has trouble catching on where the principle of seniority and hierarchies prevail. Companies have recognised the need for change, but they do not yet know how they need to change processes in order to prevail in rapid digital change. Don’t forget: Even existing digitalisation projects sometimes fail in their execution. That is why businesses need to invest more in further education and training for their employees.
In the context of digitalisation, we deal with data and systems. How relevant do you think professionalisation of the information supply chain is for companies’ economic success?
Dr H.P.: It’s very relevant. Data is the new gold or oil. Companies urgently need to build competence in the generation, segmentation and use of data. That’s the only way I can tap the opportunities for proceeding in a truly target group-based way in marketing and sales. Without efficient processes that draw on relevant information, competitiveness will be lost in the medium term at the latest.
Dr F.H.: It’s very relevant; take logistics, for instance. Where the value chain is concerned, delivery to the end customer is the most important service of the normal supply chain. And of course, big data plays a crucial role in the information supply chain: Nowadays, the data requirements are often not met. In many cases, though, an increasing willingness to share data can be seen. Companies largely expect to cut inventory, storage and administrative costs through digitalisation.
In your view, what are the greatest opportunities digitalisation has to offer?
Dr H.P.: That has a great deal to do with the particular sector. Digitalisation is not just an opportunity or a risk – it is a mindset of changed customer needs, and therefore a must if a business intends to remain competitive.
Dr F.H.: As flat-footed as this may sound: time is money. Digitalisation accelerates processes while eliminating things like standing in line at government offices and administrative procedures in general. Digitalisation also has an important function in the field of education, such as in the upcoming integration of refugees. From a German point of view, however, the main thing is not to be left behind.
DR HUBERTUS PORSCHEN
Dr Hubertus Porschen is CEO of App-Arena GmbH, partner at iConsultants GmbH, an expert for social media and digitalisation, a keynote speaker for digital transformation and, since September 2015, Chairman of ‘Die jungen Unternehmer’, a German association of young entrepreneurs.
DR FLORIAN HARTLEB
Dr Hartleb studied political science, law and psychology at Eastern Illinois University and the University of Passau. Among other positions, Hartleb has worked with the German Bundestag and at the ‘Wilfried Martens Centre for European Studies’, a think tank in Brussels. He now lives in Tallinn as a political advisor and e-resident, engaged in research into digitalisation and organising trips by entrepreneurs.
Temel Kahyaoglu is a member of the Executive Board at The Group of Analysts AG and Chief Analyst for Information Supply Chain Management. The Group of Analysts published the EDEN Study in 2017, measuring the degree of digitalisation among European companies.